Another One Bites The Dust In Insider Trading Investigation

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New York, NY – Although many in the U.S. financial markets were on vacation last week, U.S. prosecutors continued to toil in its ongoing investigation into alleged insider trading.  On Wednesday, December 29, 2010 California technology industry executive, Winifred Jiau, was arrested on charges of leaking secrets about chipmakers Marvell Technology Group Ltd and Nvidia Corp to two hedge funds in exchange for illegal payments.

The Newest Charges

Based on recorded conversation, federal prosecutors charged Ms. Jiau with providing two hedge fund managers with information about Marvell’s financial results for the quarter ended May 3, 2008 – information which generated more than $820,000 in trading profits for these two separate funds.

The complaint also states that on Aug. 8, 2008, Ms. Jiau told the portfolio managers that Nvidia would post revenue of “892” for its 2009 fiscal second quarter and announce a stock buyback.  A few days later, Nvidia posted revenue of $892.7 million and added $1 billion to its buyback program, prosecutors said.

Prosecutors said that Ms. Jiau sold this information to the two hedge funds through an unnamed expert network in exchange for more than $200,000 of payments made through that firm.  While it is unclear which expert network paid Ms. Jiau, Primary Global Research said in a statement that it had used Jiau as a consultant from September 2006 to December 2008, when “the relationship was ended.”  This period roughly corresponds to the time frame that prosecutors said Jiau’s alleged illegal activity took place.

Jiau is the sixth person who has been arrested since U.S. authorities raided three hedge funds in November, 2010.  Jiau, age 43, was charged with one count of securities fraud and one count of conspiracy, and if convicted could face up to 25 years in prison and $5.25 million in fines.

The Upshot of This Arrest

Like most of the arrests seen so far in the ongoing federal investigation on insider trading, the charges against Ms. Jiau seem, on the surface, to be a “run of the mill” insider trading case as the information that was provided to the two unnamed hedge funds was both nonpublic information that was clearly material.

However, as we have said before, at least one of the arrests seems to indicate that the federal authorities could be trying to expand the definition of material nonpublic information as they try to alter the behavior of the hedge fund industry.

The Major Players in the Current Investigation

The following are descriptions (in alphabetical order) of some of the major players in the current insider trading case taken, in large part, from an article written by Emily Chasan and published by Reuters on December 29, 2010.

Don Ching Trang Chu

Mr. Chu, an executive at California research firm Primary Global Research, was arrested in November, 2010 on charges that he introduced hedge funds to executives who gave them insider trading information.  Primary Global has since cut ties with Mr. Chu, who had worked as a Taiwan Liaison at Primary Global.

Daniel DeVore

Mr. DeVore, a global supply manager at Dell Computer, is cooperating with the probe.  He has plead guilty to securities fraud in connection with his work as an “expert network” consultant for Primary Global Research, Guidepoint Global and Vista, according to court papers.

James Fleishman

Mr. Fleishman, 41, of Santa Clara, Calif. was an account executive responsible for attracting new clients to Primary Global Research.  He was arrested in December 2010 on charges that he arranged for hedge funds to speak to consultants, knowing the consultants would provide inside information to the funds. He has been placed on leave by Primary Global.

Winifred Jiau

Ms. Jiau, 43, was arrested on Wednesday, December 29, 2010 as prosecutors accused her of selling inside information about publicly-traded companies including computer chipmakers Marvell Technology Group Ltd. and Nvidia Corp. to hedge funds. Ms. Jiau worked as a consultant for expert network firm Primary Global Research, according to details in the complaint. She was ordered detained by U.S. Magistrate Judge Nandor Vadas at a hearing Wednesday in San Francisco and a bail hearing is set for Jan. 3.

Manosha Karunatilaka

Mr. Karunatilaka, a manager at Taiwan Semiconductor Manufacturing Company North America in Burlington, Mass., is accused of having a conversation with a technology analyst at a financial firm in which he provided material non-public information about his company and its customers. Mr. Karunatilaka was also a consultant for Primary Global from 2007 to 2010, and his role at Taiwan Semiconductor included forecasting, planning, sales and marketing, according to a Primary Global document. He was arrested earlier this month.

Richard Choo-Beng Lee

Mr. Lee pleaded guilty in 2009 in the insider-trading prosecution of Galleon Group hedge fund founder Raj Rajaratnam and 22 other traders. Mr. Lee, who once worked for hedge fund SAC Capital, was identified as a cooperating witness in some of the recent complaints.

Mark Anthony “Tony” Longoria

Mr. Longoria, a Round Rock, Texas-based supply chain manager for Advanced Micro Devices Inc., was arrested in December 2010 and is accused of providing confidential details about revenue and sales to a hedge fund. He was also a consultant for Primary Global.

Karl Motey

Mr. Motey, age 46, has been identified as an important cooperating witness in the government’s ongoing investigation into allegations of insider trading.  Motey founded Coda Group Inc., an independent research firm in Los Altos, Calif., that provided detailed reports about technology companies to a handful of hedge funds and mutual funds.  Before running Coda, Mr. Motey worked as a semiconductor analyst at First Union Securities, now Wachovia Securities, from April 2001 to May 2006.  He also worked at C.E. Unterberg, Towbin and Deutsche Bank Securities Inc.

Walter Shimoon

Mr. Shimoon, who was arrested in December, 2010, was a senior director of business development at Flextronics International, and is accused of providing confidential information to a hedge fund about Flextronics and Apple Inc., according to a complaint this month. He is currently free on $150,000 bail.

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